ICRA upgrades ratings of NCD programme from MRF

NEW DELHI: The rating agencyICRA on Friday upgraded the long-term rating of the Rs 500 Crore Non-Convertible Debenture (NCD) and Rs 100 crore proposed NCD programme of MRF Limited from AA+ to AAA, which stands for stable.

The upgrade in the rating reflects the strong business profile of MRF and sustained improvement in the company’s financial performance over the years, driven by robust growth in earnings and cash flows.

Amidst heightened competition and large supply additions by key industry players, MRF’s ability to sustain the market leadership position in the Indian tyre industry buttressed by a well-balanced product mix and diversified segmental mix underpins the rating.

Favourable skew towards replacements (72% of revenues), presence across all product segments, wide distribution network and aggressive pricing on the back of strong brand equity ensures stability to MRF’s business profile going forward.

MRF’s financial risk profile is strong with a sizeable networth of Rs 68.6 billion, cash and liquid investments of Rs 29 billion and comfortable capitalization and coverage indicators as on March 31, 2016. Over the years, the accruals were largely reinvested in the business towards capacity expansion and brand promotion purposes.

Steady fall in raw material prices in the last two years coupled with operational synergies arising from cost control measures, near-full utilization of capacities and better absorption of fixed costs supported MRF’s profitability indicators.

The consolidated operating and net margins stood at 22 percent and 11.5 percent for the 18 month period ending March 2016 against 15.1 percent and 6.8 percent respectively reported during the period, September 2013 to October 2014.

MRF has been investing steadily towards capacity additions in the last few years with a capital expenditure (capex) of over Rs 53.4 billion during the period, October 2010 to March 2016. With only portion of the capex being debt funded and further supported by strong cash accruals, MRF’s capitalisation indicators are comfortable with a net gearing of 0.11x.

ICRA said that on the coverage front, the interest coverage ratio and net debt to OPBDITA stood satisfactory at 12.85x and 0.16x respectively as on March 31, 2016. Over the medium term, MRF is estimated to spend around Rs 10.0-12.0 billion on an annual basis towards ramping up of its capacities.